Saturday, March 5, 2011

Spain; The Black Market is a Safe Haven when Command Economies Fail by Sean Sawyer

With unemployment at 20 percent, the highest level in the European Union, getting paid under the table or dodging taxes is a safety net for millions of Spaniards in hard times.

For plenty of other Spaniards in the small business sector, it is the only way they have ever operated.

"In this country people show off about dodging taxes. The consequences of that level of tolerance (of fraud) is devastating for the economy," said Javier Diaz-Gimenez, economist at IESE Business School in Barcelona.

For example, when a Spaniard takes out a mortgage the loan officer often asks for the price of the house for tax purposes and the real amount of cash that exchanged hands.

Such common practices mean the underground economy may be equivalent to up to one fifth of total gross domestic product, or around 200 billion euros, according to estimates by economists and a government minister.

Economists say Spain's black market is partly counter-cyclical, growing in size when the economy shrinks, and partly correlated to tax rates and labour market reforms that make it cheaper for companies to hire and fire.

During the bust part of the boom and bust cycle, that command economies create. Spain's underground economy enables individuals to help themselves in times of despair. In a nation with a long history of governments destructive nature. It is no wonder that the underground economy has been engrained in the subconscious of many Spaniards. It has been their for them when the command economies fail.

For these black marketeers it is not looked at as conscious to participate in non cohesive market. But has become a natural reactions to the booms and bust command economies create. These unconscious black marketeers have come to learn these things from experience. Not from some counter economy theory out of so austrian economics book, they have lived it. Experience is the impetus of knowledge, it is the practice behind the theory.